Sunday, December 9, 2012

Twelve Men on the Field

No serious sports fan or athlete can forget the contest in which a game was decided by an egregious call made by the referee.  It's worse when the referee has called a lopsided game and rewards a deficient team with a favor that creates the illusion of victory where defeat was the merits of performance.  If this analogy doesn't land on some field in your memory, you've never played (or cheered) hard enough.

Favored by aggressive credit intervention by China Development Bank, China's ZTE is surging into global dominance in an industry once defined by American and European innovation and engineering.  The announcement of a $20 billion credit facility from CDB has drawn the consternation of the U.S. House of Representatives' Intelligence Committee and equally protectionist-minded EU critics.  Global network equipment sales leaders now are exclusively Asian and European and, with Alcatel misfiring on all cylinders at the moment, America's Bell legacy is on the verge of extinction.  So, having lost the game in the fourth quarter, we're hoping for "fair" to become "favored" and we want a ref to make up a call.  Block contracts.  Block sales.  Make up excuses like national security to restrict free trade.  C'mon ref, give us a call!

Amusing or pathetic?  So long the evangelist for capitalism and "free trade", all our chickens are coming home to roost and just at the wrong time for the U.S. economy.  Before we can have any hope of emerging on a competitive pitch, we have to realize that our offense is out of shape and our defense has become lazy.  While the rest of the world has been scrapping it out, we were drinking modified corn starch-laden beverages all the while ignoring our obese complacence.  Now that it's time to compete, we're off our game.  And we're off our game, in part, because we cheated so long that we forget the actual rules.  Let me explain.

Modern protectionism has introduced a particularly insidious virus into global markets.  Born of the UN's 1947 General Agreement on Tariffs and Trade (GATT), war ravaged countries realized that trade and commercial interdependency may serve as a partial prophylaxis to avert future global conflicts.  In principle, this impulse was laudatory.  However, in practice, signatories to GATT and its handicapped spawn, the World Trade Organization (WTO), failed to evidence genuine commitments to what all agreed would be "fair".  Ironically, in the 1986 Uruguay Round (from which WTO actually emerged), some of the players called their own foul - led by the Cairns Group including Australia, New Zealand, Canada, Brazil and Indonesia - when they insisted that agriculture must be subjected to fairness too. 

Agriculture subsidies - some of the most extreme distortions to market forces - continue to wreak havoc on global food and energy economics and, regrettably, among the chief abusers are U.S. policy makers who continue to enrich less than 2% of the population with billions of dollars of subsidies on corn, cotton, soy, wheat, tobacco, dairy, and rice.  Promoted as "farm income stabilization" in Congressional appropriations including the Depression Era 1929 Agriculture Marketing Act and the 1933 Agriculture Adjustment Act, these multi-billion dollar vote-buying manipulations pump billions of dollars into states like Texas, Iowa and Illinois (can anyone say politics?).  What the U.S. and parts of Europe means by the term "fair" has to often meant 'the stuff that harms our advantage'.  So predictably, when we realized we were losing our competitive edge on technology (having seen agriculture dominance wane) in 1986, we decided to force our defunct scheme of intellectual property (mostly patents) on the world.  In Doha, Qatar in November of 2001, the world did the unthinkable: it pushed back.  Realizing that we can't admit to our own hypocrisy on the global stage in front of the lights, for over a decade, the U.S. and parts of Europe have adjusted trade strategy to favor obscure bilateral agreements where we can preserve our will without having to come to terms with our incapacity to play by our own dogmatic rules.

So ZTE is getting a banking break from the CDB.  So what?  Does anyone remember May 21, 2007 when the General Electric Corporation sold its crown jewel, GE Plastics, to the Saudi Basic Industries Corporation (SABIC) for $11.6 billion?  This sale was inevitable not because GE wanted it to happen but because Japan's Asahi Kasei, like ZTE, had benefited from Japan's aggressive credit financing of its plastics operations.  Without the ability to compete on the cost of capital, GE's selection of SABIC was inevitable as the Saudis could compete on the cost of benzene and petroleum derivatives through, you guessed it, de facto subsidies.  Some of you may appreciate the irony that Asahi Plastics just this week won the "Most Innovative Use of Plastics" award for its work with Ford Motor Company in some of their cars that are supported by, you guessed it, subsidies!  And how many U.S. corporations have buoyed investor returns by Fed and Treasury interest rate interventions artificially pricing borrowing at such low rates that companies are raising debt to pay dividends!  We're losing because we're not playing - not because China's deploying the same distortions that we've used for the last 80 years. 

When the European Council convened 21 years ago this month in Maastricht, Netherlands to codify the economic and monetary union, one would have imagined that, informed by the Uruguay Round, pragmatists would have recognized that the idea of economic interdependence for the common good would require an end to protectionism and market distorting behavior.  By then, there had been over 40 years of evidence that the wrench in the machine of global trade was the disingenuous impulse to laud free and fair markets out of one side of the mouth while placating parochial interests at home with the other.  Self-evident or not, alas, this pragmatism failed to rear its intelligent head and now, the European Central Bank (ECB) is hopelessly flailing in its attempts to execute its chief objective: stabilize price and labor.  Having reached the age of majority (21 years old), we have to seriously consider whether we're dealing with an adult or a genetically modified organism with the appearance maturity but limited cognitive capacity.  Judging by the reflexes triggered by system shocks of late, it appears that this Frankenstein clone of the post-war U.S. is more GMO than organic and, as a result, one wonders if it would be legally sold within the EU.

Watching the U.S. Congress and Executive bicker over taxes and austerity and watching Chancellor Merkel tip-toe between integrity and electoral expediency is making for cheap theater.  Court jester economists and pundits pretend that we're on the verge of breakdown or breakthrough with a staccato that turns equity and debt traders into clunky marionettes.  In the first few months of 2013, over $2 trillion in maturing U.S. debt will come due (a topic conspicuously absent from any conversation coinciding with inevitable additional debt demands).  The U.S. and Europe are engaged in theatrics in the smoke all the while ignoring the fire.  The inferno is being fueled by our abject failure to address the root of our current economic woes.  Using hegemonic monetary distortions to market economics, we subsidized ourselves into a gluttonous stupor ignoring those we derided as "poor" and "underdeveloped".   Now, these objects of our neglect and contempt are running circles around us and our response is to cry foul.

It's time that We the People stop falling for this ruse and tolerating policy makers who seek to continue the manipulation.  Sport teaches us that if a competitor is gaining advantage, a true athlete learns, adapts, and plays harder.  Timeless martial arts teach us that, in times of extreme adversity, the master actually absorbs the energy from the opponent and redirects it to his benefit.  Reemerging wisdom of the Commons suggests that the duality of competition - together with all of its necessary market manipulations - may serve more harm than good and, at times, we may need to develop new narratives of aligned interest rather than archetypes of conflict.  The one thing that we most assuredly know is that the condition in which we find ourselves is NOT the fault of bad officiating - it's the fault of lethargy born of complacency.  I hope you find plenty of ZTE network switches upon which you forward this message!  Let the games begin!


  1. David:

    One of your most brilliant, most useful posts to the most minds & hearts in America today. If the charge has been "wake up!", this piece calls to "listen and hear yourself cry - and accept why". Some say get tough. I say get real. Thank you.

  2. Good call! The structure of the international economy is rife with subsidies on all sides.
    Whether it is US and EU agricultural subsidies; OPIC; Federal Reserve commercial paper purchases; Korean chaebol subsidies for Samsung; Japanese Bank for International Cooperation credit subsidies for Asahi; or China Development Bank financing for ZTE, the reality is clear – everyone is subsidizing to their advantage. As the British footballers say, “Get on with it!”


Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave